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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Which statement best describes an American Depository Receipt (ADR) programme of an Indian company?

In an ADR programme, the Indian company's rupee shares are deposited with a domestic custodian, and a US depository bank issues dollar-denominated negotiable receipts against them, which trade in the United States. It is not a direct share allotment or a bond issue.

  1. AA foreign company lists receipts on Indian exchanges backed by its overseas shares
  2. BThe Indian company's underlying rupee shares are held by a domestic custodian and a US depository issues negotiable receipts against them in dollarsCorrect
  3. CThe Indian company issues dollar bonds directly to US lenders under a loan agreement
  4. DShares are allotted directly to US retail investors on the Indian stock exchange

Explanation

In an ADR, the issuer's shares are deposited with a domestic custodian and a US depository bank issues dollar-denominated receipts traded in the US. Option one describes an Indian Depository Receipt, which is the reverse. Dollar bonds and direct allotment are not depository receipts.

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